Question

At the December 31, 2012 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2013, a future taxable amount will occur and

a. pretax financial income will exceed taxable income in 2013.
b. Unruh will record a decrease in a deferred tax liability in 2013.
c. total income tax expense for 2011 will exceed current tax expense for 2013.
d. Unruh will record an increase in a deferred tax asset in 2013.

Answer 1

Unruh Corporation will record a decrease in a deferred tax liability in 2013 when an accrued receivable reported for financial purposes is recognized for tax purposes, increasing the taxable income.

Step-by-step explanation:

When Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes at the balance sheet date of December 31, 2012, this creates a temporary difference that will reverse in the future. This is because the revenue associated with the accrued receivable will be included in taxable income when it is actually received or earned under tax law, which in this case is 2013.

The correct answer to the given scenario is that a future taxable amount will occur and b. Unruh will record a decrease in a deferred tax liability in 2013. When the revenue is reported for tax purposes, the company's taxable income will increase, leading to a higher tax payable. However, because this increase was already anticipated and recorded as a deferred tax liability in the prior year (2012), the actual event of receiving the cash and reporting it for tax purposes will result in the company decreasing its deferred tax liability.